Several Supreme Court justices questioned key parts of the Department of Health and Human Services’ (HHS') decision to cut Medicare reimbursements to 340B hospitals by nearly 30%.
The Supreme Court heard oral arguments Tuesday in American Hospital Association (AHA) vs. Becerra, centering on a 2018 decision to cut outpatient Medicare drug reimbursements to 340B facilities by nearly 30%. AHA and other hospital groups have sued to halt the cuts, and an appellate court sided with HHS that it has the power to make the cuts.
HHS has argued the cuts are needed to reimburse those hospitals for the actual acquisition costs of the drugs, but hospital groups sued over the cuts.
The 340B drug discount program requires drugmakers to offer discounts to safety net providers in exchange for participation in Medicare and Medicaid.
AHA argued that HHS didn’t have the authority under the 340B statute to make such cuts and cannot single out 340B facilities.
However, Justice Steven Breyer said the statute does say the HHS secretary can adjust rates as necessary.
“The point seems to be to pay the hospitals what they actually pay for the drugs, which sometimes you can figure out and sometimes you can’t,” he said. “When it says adjust for purposes, they mean adjust so that you get closer to what hospitals are really paying for these drugs.”
But Donald Verrilli Jr., the attorney for AHA, responded that the law says HHS should do a cost study before it sets aside the rate changes for a specific group of hospitals.
RELATED: PhRMA sues Arkansas over law requiring companies to offer products to 340B contract pharmacies
Other justices questioned why HHS did not do the cost study, which it didn’t start until last year.
Justice Elena Kagan said the basic statute appears to say, “you can charge acquisition cost when you’ve done a survey.” But when you have not done a survey, you do not get to do this, she added.
HHS argued that the survey isn’t a requirement to adjust the rates.
“There is no requirement that the agency take the survey other than periodically,” said Christopher Michel with the solicitor general’s office. “The agency is not evading the survey requirement because there is no survey requirement in this case.”
Michel added that the 2020 survey sent to about 1,400 340B hospitals produced mixed results, as 55% responded to allow HHS to use the data it already has and 7% gave their own data. Another 38% did not respond at all.
He added that HHS made a “modest adjustment” of requiring 340B providers to share some of their discounts with Medicare beneficiaries in other facilities.
“That sound approach was well within the agency’s statutory authority,” Michel said.
However, Justice Brett Kavanaugh questioned whether 340B hospitals are being overpaid as the government argued. He said that they provide “a huge amount of uncompensated care in the hospital.”
“To say overpayment … is part of the picture but doesn’t take into account the whole 340B picture, which is more complicated,” Kavanaugh added.
Michel countered that there is other aid provided to such facilities including disproportionate share hospital payments. He said that the government isn’t arguing 340B hospitals shouldn’t be valued, but that the “Medicare program was not designed to subsidize 340B hospitals.”
A decision is likely to be released sometime next year.
The lawsuit comes as drugmakers are also fighting the federal government over its decision to fine companies for restricting access of 340B products to contract pharmacies. The Biden administration is moving to fine six drugmakers over their restrictions, but the drugmakers argue in federal court that they can make such moves under the 340B statute.